Next up: Fiat Chrysler labor talks that could prove difficult

Labor talks between Fiat Chrysler and the United Auto Workers union get underway in earnest next week. Whether they are as easy as the just concluded talks at Ford or as bloody as those at General Motors that resulted in a six-week strike remains to be seen.

On the one hand things are going pretty well at Fiat Chrysler, which should suggest it can reach a deal fairly quickly with the union.

It just reported record third quarter earnings. It has agreed to merge with French automaker PSA Group, maker of Peugeot, a deal that give it the size and financial wherewithal it has been seeking since Fiat and Chrysler first joined forces 10 years ago.

The company has said it doesn’t have any plans to close either US or European plants, and financial analysts and credit rating agencies all agree the company will be stronger if and when the deal is completed.

In fact rather than closing US plants, as GM and Ford are doing, Fiat Chrysler is in the process of building a new plant to construct Jeeps in Detroit, which will add nearly 4,000 jobs. And Fiat Chrysler has already added about 5,000 union members to payrolls in the last four years.

But Fiat Chrysler has been working under a contract that gave it a lower average labor cost than either GM or Ford in recent years, as it used far more recent hires who receive lower pay and less benefits than workers hired before 2007.

While veteran employees receive about the same pay at all three companies, only 28% of Fiat Chrysler’s hourly production workers were hired before 2007 and thus are getting that top pay. The rest are more recent hires receiving a lower pay and benefits package, or temporary workers who receive an even smaller package.

That means Fiat Chrysler today has an $8 to $10 an hour labor cost advantage over Ford and GM said Kristin Dziczek, vice president of industry, labor and economics at the Center for Automotive Research, a Michigan think tank.

The deals at Ford and GM will eliminate the pay gap among permanent workers by the end of those four-year contracts. And those deals also will move more of the temporary workers into permanent status.

Since GM and Ford had far fewer of those workers than Fiat Chrysler, they could agree to that union demand more easily. It will be far more expensive for Fiat Chrysler to match the deals the union has won from GM and Ford.

Fiat Chrysler leadership has already made clear it might not agree to the same terms.

“Obviously each of us, each of the Big Three in Detroit are in different conditions in terms of labor workforce,” CEO Michael Manley told investors last month. “I’m hoping to be able to get to a conclusion of the negotiations and get on with building great cars in the near future, but beyond that, I don’t want to get into speculation of what may work and what may not work here.”

That comment brought a quick response from the union, which made it clear it expects Fiat Chrysler to step up to the pattern set at GM and Ford, especially since its North American operations is where it is making its money.

“You cannot brag about your earnings to Wall Street and at the same time ignore the sacrifice of your workforce that put you in that profitable position,” said a statement from the union.

The merger deal with PSA also poses a negotiating challenge for the company. If it does go through, the new combined company will be bigger than GM. That will reduce its argument that it needs a more affordable deal than the ones at GM and Ford.

“The argument that ‘We’re the little brother and deserve a [cost saving] deal,’ that’s going to be a tough sell,” said Dziczek.

Thus Dziczek said there is little chance that Fiat Chrysler will be able to avoid matching the deals at GM and Ford.

“Fiat Chrysler workers have seen the deal the union got at GM and Ford. They’re not going to settle for significantly less,” she said. Even if union negotiators were to reach such a deal, it wouldn’t get ratified by the UAW members who are getting the lower wages.

“You can make any deal you want but if it doesn’t get ratified it’s not a contract,” she said. And if the company doesn’t agree to the union demand, it could see its 47,200 UAW members go out on strike, as they did for nearly six weeks at GM.

“I know it’s cold, I know it’s almost Thanksgiving. But I don’t think that rules out the union using the strike weapon if they can’t get what they need,” Dziczek said.